G20 vows to let markets rule

In a concerted move to calm fears of a so-called currency war, finance officials from the world’s largest industrial and emerging economies expressed their commitment to “market-determined exchange rate systems and exchange rate flexibility".

In a statement issued at the ­conclusion of a conference of the Group of 20 in Moscow, the finance ministers promised: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive ­purposes."

In its statement, the group also vowed to “take necessary collective action" to discourage corporate tax evasion, particularly by preventing companies from shifting profits to avoid tax obligations. For instance, a number of big American companies, including Apple and Starbucks, have come under scrutiny recently for seeking out the friendliest tax ­jurisdictions.

Over all, the statement largely echoed one last week by seven top industrial nations pledging to let market exchange rates determine the value of their currencies. Currency devaluation can be used to gain competitive advantage because it makes a country’s exports cheaper.

“We all agreed on the fact that we refuse to enter any currency war," French Finance Minister Pierre Moscovici told reporters at the conference, which was held in a meeting centre a short walk from the Kremlin and Red Square.

In the statement, the Group of 20 pointedly avoided any criticism of Japan, where stimulus programs backed by Prime Minister Shinzo Abe have kept interest rates near zero and flooded the economy with money – leading to a drop in the value of the yen against the US dollar of roughly 15 per cent over the past three months.

The Japanese policies, which have reduced the cost of Japanese products around the world, were the primary cause of fears of a currency war.

In essence, the Group of 20 expressed a view that loose monetary policy, including steps that weaken currency values, are acceptable when used to stimulate domestic growth but should not be used to benefit in global trade.

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Critics of that view say that it amounts to a distinction without a difference because loose monetary policies stimulate growth and bolster exports at the same time. The US has also used a loose monetary approach to aid economic recovery in the form of “quantitative easing", by which the Federal Reserve buys tens of billions of dollars in bonds each month.

The chairman of the Federal Reserve, Ben Bernanke, who attended the conference, gave brief remarks on Friday indicating support for Japan’s efforts.

Faster-growing, developing countries such as Brazil and China have expressed concerns about the loose monetary policies of more established economies such as Japan and the United States. The money created by policies such as the Fed’s quantitative easing can prove destabilising as it enters faster-growing economies.

The Group of 20 acknowledged this concern in its statement, saying: “Monetary policy should be directed towards domestic price stability and continuing to support economic recovery according to the respective mandates. We commit to monitor and minimise the negative spillovers on other countries of policies implemented for domestic purposes."

As the three-day conference drew to a close, participants did not reach any new agreement on debt-cutting targets. Efforts to reach such a pact will continue at the annual Group of 20 summit meeting to be attended by US President Barack Obama and other world leaders in St Petersburg in September.

But while the debt agreement was elusive, the Group of 20 leaders reiterated efforts to work together, promising to “resist all forms of protections and keep our markets open".